Staff Writer

Johnson & Johnson's not-surprising bid to gain full rights to Remicade (infliximab) and Simponi (golimumab) could derail or at least stall partner Schering-Plough Corp.'s carefully structured, $1.1 billion plan to consolidate with Merck & Co. Inc.

But completing the merger does not depend on the outcome of the arbitration, if it happens, and the situation could lead instead to a retooled version of the original deal, that leaves less upside for Merck but lets both sides avoid a costly, time-consuming battle.

In an S-4 filed Wednesday with the Securities and Exchange Commission, Kenilworth, N.J.-based Schering disclosed that the J&J unit Centocor gave notice of its intention to have an arbitrator help decide whether the proposed Merck/Schering represents a change of control for Schering.

Under the terms of New Brunswick, N.J.-based J&J's deal with Schering, if the latter was bought out (and therefore became controlled by another entity), the acquirer could not take overseas rights to Remicade and next-generation Simponi, antitumor necrosis factor drugs for arthritis.

Merck, of Whitehouse Station, N.J., and Schering structured their come-together deal as a reverse merger to dodge the change-of-control contract provision. (See BioWorld Today, March 10, 2009.)

It didn't work.

The would-be Schering/Merck entity has plenty to lose. Schering reaped about $2.1 billion from Remicade last year, and Merck was hoping that money could aid in dealing with looming patent expirations on key products. Simponi was approved in April. (See BioWorld Today, April 27, 2009.)

Schering vowed to "vigorously contest" any attempt by J&J to regain all rights to the arthritis drugs.

What real-world effect an arbitration decision might have was unclear, and Schering said in its SEC filing that "due to the uncertainty surrounding the outcome of any threatened or actual proceeding, the parties may choose to settle a dispute under mutually agreeable terms."

Meanwhile, a separate SEC filing showed that Merck and Schering voluntarily withdrew their Hart-Scott-Rodino notification to the Federal Trade Commission. That restarted the 30-day review clock. It's a voluntarily delay, but one with a strategy that could prove beneficial in the longer run, without pushing Merck and Schering beyond the fourth-quarter deadline by which they aim to finish the merger.

The parties have disclosed in SEC paperwork a "drop-dead date" of Dec. 8, after which either can end the merger if closing conditions related to antitrust and other matters have not been met. Merck and Schering are probably trying to make certain they have enough time to tie up the loose ends.

There's not a lot of overlap between the two firms, but areas such as IGF-1 antibodies could be a problem.

Also, Schering has the animal-health subsidiary Intervet Inc., of Millsboro, Del.; Merck also has a strong business in that space, including Duluth, Ga.-based Merial Ltd., a joint venture with Sanofi Aventis Group, of Paris.

In order to satisfy antitrust overseers, some IGF-1 programs might need to be divested, and one of the animal-health companies could be sold.